Law of One PriceSample selectionOn-line pricingDispersionAirlinesExchange rate

Issue Date:

2007

Abstract:

We introduce an on-line pricing tactic where airlines post, at the same time and for the
same flight, fares in different currencies that violate the law of One Price. Unexpectedly for
an on-line market, we find that price discrimination may be accompanied by arbitrage
opportunities and that both tend to persist before a flight’s departure. We find discrimination
to be of a competitive type, although arbitrage opportunities are more likely in concentrated
routes. Finally, the evidence suggests that discrimination may be used to manage stochastic
demand.

Description:

This is a working paper. It is also available at: http://ideas.repec.org/p/lbo/lbowps/2007_10.html.